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Economists believe in market efficiency, so when the net income of a property becomes lower due to, e.g., management fee and taxation (MT), its market price should also be lower, to be in line with the rate of return of other investments. This paper shows that such efficient price is illusionary. The full price of a purchase must include the capitalization of MT. The difference between the two prices means externality and distortion. This paper also reveals who will buy or rent properties with high MT, proves why investment in similar coops is even worse, and shows how MT further messes up the property market. Finally, this paper corrects Economics' understanding of price.

This paper evaluates the informational efficiency of the leverage loan market. First, variance ratio tests are conducted to answer the question whether this private debt market as a whole is efficient. Second, the recently developed adjusted market inefficiency magnitude is applied to assess the level of market inefficiency over time. The results indicate that the broad leveraged loan market, as well as capitalization and risk-based sub-indices exhibit large levels of inefficiency and that loan returns do not follow a random walk but are significantly serially correlated. The degree of inefficiency shows some time-variation, however, it is generally large in magnitude.

The Fama and French (2015) 5-factor model is commonly used to measure the performance of stock return portfolios. Importantly, we find that three of the Fama and French (2015) firm-level characteristics (i.e., size, BV/MV, and profitability) have no significant explanatory power in the cross-section of returns for companies above the median NYSE capitalization during 1963-2020. Small firms comprising less than 8% of the total market capitalization drive the patterns of the 5-factor model. This paper also reexamines equity issuer performance in the context of the 5-factor firm level characteristics and finds that small and large issuers have similar underperformance.

I show that a single ratio requiring only a public company's face value of debt and stock market capitalization is a robust bankruptcy predictor. I develop this ratio from a simple theory of the bankruptcy decision and denote it Ps, since it is the minimum price at which a firm's debt must trade if the firm is solvent. Used alone or in combination with other variables, Ps provides a useful tool for credit analysts, bankers, public accountants and others, and will be of considerable value in academic research on financial distress. I present bankruptcy frequencies for a range of Ps values to facilitate bankruptcy prediction by the reader.

This paper compares the informativeness of discretionary research and development (R&D) capitalization under IAS 38 with non-discretionary “as-if” R&D capitalization. While prior research has consistently demonstrated capital market benefits of “as-if” capitalization, prior evidence for reported R&D capitalization has been less favorable due to earnings management concerns. Since “as-if” studies are based on adjusted data assuming R&D capitalization, the resulting numbers are free from such concerns and may hence be more informative. We find that reported capitalized R&D is not associated with lower information asymmetry but positively associated with forecast errors. Consistently, while market values are not associated with reported capitalized R&D, they are strongly associated with “as-if” capitalized R&D. Also, actual capitalization of development expenditures under IAS 38 is only as value relevant as expensing all R&D. Our results are consistent with the notion that market participants undo actual capitalization and use the information on expensed R&D to develop their own estimates of R&D value. Our findings lend support to the proposition by Barker and Penman (2020) that deficiencies of the balance sheet that result from the uncertainty inherent in expenditures such as R&D, should be supplemented by more detailed information on the nature of the related expenses in the income statement.

In February 2020, BP made a commitment to become carbon neutral by 2050, creating an obligation to society and investors. We explore how accounting practice constrains BP’s transition plans. While BP can achieve much of its net zero obligation through technical innovation, these investments will typically be expensed through the income statement, whereas capital expenditures on hydrocarbon projects would tend toward capitalization and slow depreciation through the income statement. And whereas internally-generated innovation will be expensed, intangibles acquired in M&A will be capitalized. Accounting's logic must support BP's net zero obligation as a social imperative and reward its acceleration. Normative accounting for intangibles provides a promising solution to overcome these challenges and restore accounting for net zero decision-making and reporting.

After a decade under federal control, the Belgian regions became responsible for the mortgage interest and capital deduction (MICD) in 2015. One region drastically reduced the average subsidy while another left it unaffected. Exploiting this variation in a difference in differences design, we estimate the impact on prices, construction and sales. The tax subsidy largely capitalizes in the price of houses and developable land. The response in prices together with a lack of effect on buildings permits suggest the supply of land is inelastic. Finally, a small but insignificant positive effect indicates the reduction did not depress house sales.

This paper deals with the analysis of determinants of the decision of investing in Individual Retirement Accounts (IRA) among Europeans aged 50 and over, starting from the SHARE-ERIC data set (Wave 7), filtered on dominant residences and full-time education before the fall of the Iron Curtain in Europe. Using more than 33.000 records, it validates the assumption that schooling and living place in former communist countries count for such financial behavior. Further, it brings two particular models with good accuracy of classification starting from the latter criterion. We applied many methods and techniques based on data mining and variable selection tools, probit and binary logistic regression analysis with average marginal effects, automatic cross-validations, mixed-effects modeling with random effects on countries, and prediction nomograms. We found that some influences from the same financial category as the dependent variable, such as having life insurance or ever investing in mutual funds or stocks count the most when dealing with investing in IRA. More, the younger respondents, those with computer skills required by their jobs, and those who have gone through at least a period of high stress were more likely to invest using such an instrument, no matter their residence and education. Besides, more educated people, those who suffered in their past by some form of discrimination, the relaxed, happier, more independent, and more interpersonal confident individuals were more prone to choose to invest this way. Moreover, this paper also confirms some country-level influences related to stock market capitalization to GDP ratio and Worldwide Governance Indicators.

This paper analyzes the impacts of bank competition and risk-taking on performance in MENA countries. We use an unbalanced panel dataset over the period 2011-2017 for the MENA countries. This study uses the two-stage least square (2SLS) estimator to test the results, and we use the generalized method of moments (GMM) to test the robustness check. Aftermaths of the data analysis, it finds that lower competition has a benefit in both risk and financial stability. Hence, the lower competition will reduce the risk-taking behavior. As a result, it will increase the financial stability in the banking systems. Our results show the inverse relation of the structure conduct performance (SCP) hypothesis. Our results also show that the MENA country's (banks) profitability is significantly affected by the size, taxation, cost management, capitalization, GGDP, and inflation. Finally, the study also recommends some policy implications for example MENA countries should shrink tax rates for Islamic banks as well as commercial banks; tax burden should hand over from bank authority to potential buyers. They should focus on the development of the banking sector and employ more skilled and experienced staff. Islamic Bank should restructure to disburse loans and raise capital. The focus should be on promoting them through the diversified activities of Islamic Banks.

The capitalization and lifetime of coal-fired power plants as well as political support for them are the largest impediments to decarbonisation, particularly in China. We introduce a market-oriented capacity remuneration mechanism to transform current coal capacity into an essential tool to support renewable electricity integration. This mechanism will not only reduce CO2 emissions but also backstop renewable electricity in the near-term to improve system reliability. Using generation and emissions data from the SWITCH-China model, this paper calculates the reserve economic value and its development pathway for the current legacy coal capacity. Our results show that more than 500 gigawatts (GW) of coal capacity can continue to serve as the reserve capacity by 2050, and this contributes 25% of the total reliable capacity required by the system. In contrast to the aggressive strategy of retiring all coal capacity, this pathway could save the China's power system at least US$100 billion in fixed-asset investment costs.

In this paper, we investigate the effects of the negative interest rate policy (NIRP) on bank credit offering and the borrowing behavior of firms by using tens of thousands of bank-firm matched data for Japanese listed firms. By utilizing the difference-in-difference method, we find that the implementation of the NIRP in February 2016 by the Bank of Japan has a significantly negative impact on loans from banks with larger reserves. Furthermore, the negative interest rate led to heterogeneous credit allocation effects, that is, banks with lower capitalization increased loans to risky firms or firms with lower distance-to-default. In addition, non-financial firms that borrow from banks with high exposure to the negative interest rate decreased their fixed investments. Further, we also provide insight into the unintended effects of the NIRP in terms of profitability channel by demonstrating that a bank's high reliance on deposit funding does not necessarily lead to the existence of a reversal rate, unlike previous studies using European data.

This paper sheds light on the similarities and differences with respect to the presence of anomalies in the China A-share market and other markets. To this end, we examine the existence of 32 anomalies in the China A-share market over the period 2000–2019. We find that value, risk, and trading anomalies carry over to China A-shares. Evidence for anomalies in the size, quality, and past return categories is substantially weaker, with the exception of a strong residual momentum and reversal effect. We document that most anomalies cannot be explained by industry composition, and are present among large, mid, and small capitalization stocks. We are the first to examine the existence of residual reversal, return seasonalities, and connected firm momentum for the China A-share market. We find strong out-of-sample evidence for the former two, but not the latter. Specific characteristics of the China A-share market, such as short-sale restrictions, the prevalence of state-owned enterprises, and the effect of stock market reforms, are examined in more detail. These features do not seem to be important drivers of our empirical findings.

Value stocks endured a period of severe underperformance until recently. We show that the value spreads between valuations of value stocks and their most expensive peers expanded in all regions and sectors during this period of underperformance, reaching the same extreme high levels last seen at the peak of the tech bubble in 2000. Investors have re-rated expensive stocks relative to their value peers reflecting an expanding difference in their respective earnings growth forecasts. There are signs this trend may now have changed. Value spreads may have started a new period of compression at the end of 2020, a trend led by shrinking differences in earnings growth forecasts. A compression in value spreads would be favorable for value stocks, smaller capitalization stocks and for multi-factor strategies.

In this study we explore market power in 13 EU banking sectors for the years 2007 to 2019 by estimating a structural model with demand and supply equations, where the mark-up of price over marginal cost is parameterized as a measure of banks’ conduct that depends on selected factors. Our evidence indicates that EU banks enjoy a significant degree of market power, which shows a decreasing trend over time and some difference across countries. More competition is associated with higher bank density, lower bank capitalization, more efficient and stable banking systems, and better macroeconomic conditions. Finally, a clear convergence pattern emerges in the behaviour of EU banks.

Compared with other capital markets around the world, Vietnam’s capital market has a relatively short history of only 20 years. In that time, however, the Vietnamese capital market has transformed—from a small market with limited products and capitalization at 1% of GDP in 2000 into a market with a wide range of stock, bond, and derivative products worth 104% of GDP in June 2020. The market is attracting more participants locally as well as internationally, drawing a large amount of capital into Vietnam’s economy and contributing significantly to the nation’s growth. If Vietnam can adequately address its challenges—such as institutions, high-quality human resources, financial infrastructure, IT, transparency, and financial product range—its capital market will have many opportunities to grow because of its relatively small size (compared with other Asia-Pacific economies) and the country’s great economic prospects.

Solvency regulation of the U.S. insurance industry occurs at the state level and is led by insurance commissioners who wield significant discretion. I construct a novel dataset of the employment history of these commissioners and find 38% of them work in the insurance industry after their term (“revolvers”). Revolvers are more lenient when regulating insurers' solvency along multiple dimensions. Consequently, insurers in revolver-led states over-reported their capitalization during the 2008 financial crisis by up to 10%. Revolvers’ leniency can lead to inflated insurer credit ratings, and consumers can be overpaying up to $27 billion in insurance premiums a year.

We provide evidence that the documented weakening of the accrual-cash flow association results not from a loss of accrual accounting usefulness per se, but from the deviation from accrual accounting as it relates to intangible investments. More specifically, the weakening of the negative association is driven by the combined effects of (1) increasing intangible investments, (2) the practice of expensing rather than capitalizing intangible investments, and (3) scaling accruals and cash flows by book value of assets, which are understated for intangible-intensive firms. Treating intangible expenditures as capitalized investments and scaling accruals and cash flows by market value of equity, which reflects the value of intangible investments, (1) substantially strengthens the negative association between accruals and cash flows and (2) practically eliminates the apparent weakening trend in the association.

This paper analyzes efficiency and profitability in the Swiss banking sector over the period 1997- 2019. We find strong evidence for scale economies: for most banks in the sample, efficiency and profitability increase with bank size. Using an instrumental variables strategy for a subset of geographically restrained banks, we find that the effect of size on efficiency and profitability is likely causal. Scale economies have been more pronounced since 2010 than in the years prior to the global financial crisis. There is little evidence for scale economies for the largest (systemically important) banks; their relatively lower efficiency and lower profitability appear driven by certain aspects of their business model. Our results further indicate that good capitalization and high efficiency and profitability are compatible.

This paper examines how European banks adjusted lending at the onset of the pandemic depending on their local exposure to the COVID-19 outbreak and capitalization. Using a bank-level COVID-19 exposure measure, we show that higher exposure to COVID-19 led to a relative increase in worse-capitalized banks' loans whereas their better-capitalized peers decreased their lending more. At the same time, better-capitalized banks experienced a significantly larger increase in their delinquent and restructured loans. These findings are in line with the zombie lending literature that banks with low capital have an incentive to issue more loans during contraction times to help their weaker borrowers so that they can avoid loan loss recognition and write-offs on their capital.

More than a year has passed (July 2018) since the publication of "The impact of tariff regulation on the economic and financial results of water service operators" (Canitano & Peruzzi, 2018) and in this edition we are able to provide a time line that runs from 2007 to 2018, two years longer. The aim of the research is always the same, that of "an analysis of the changes that have occurred in the economic regulation of water companies, interpreting them in the light of the financial statements of a group of fifty water companies. The companies, with the MTI, have seen their profitability grow which has increased their incoming cash flows to such an extent as to allow them to make a higher volume of investments, distribute substantial dividends and at the same time increase their capitalization. This could suggest that, at least as regards the financial potential offered by the Italian regulator with the MTI, the companies could have made a greater volume of investments than that achieved so far.

This paper examines the impact of bank-specific factors and variation in the stringency of government policy responses on bank stock returns as a response to the COVID-19 pandemic. We use a sample of 1927 publicly listed banks from 110 countries for the period of the first major wave of the COVID-19: January to May 2020. Our findings indicate that stock returns of banks with higher capitalization, more diversification, higher deposits, lower non-performing loans, and larger size are more resilient to the COVID-19 pandemic. While the environment and governance scores of banks do not have a significant impact, higher social and corporate social responsibility (CSR) strategy scores of banks intensify the negative stock price reaction to the COVID-19. We further observe that the pandemic-induced reduction in bank stock prices is mitigated as the strictness of government policy responses increases, mainly through economic responses such as income support, debt &contract relief, and fiscal measures from governments.

Based on the notion that the effects of IFRS adoption are dependent on changes in the institutional environment, this paper analyses the effects of one prominent feature of IFRS: the accounting for research and development (R&D) under IAS 38. In our setting, IFRS adoption is accompanied by a change in the national institutional environment of R&D disclosure in the management commentary. National disclosure regulations can make R&D capitalization more informative when investors are skeptical of capitalization due to reliability concerns. We find that firms with higher levels of R&D disclosures that are not suspect of earnings management generally have lower cost of capital and higher market values. Their cost of capital increase and market values decrease with higher R&D capitalization, indicating that capitalization introduces information uncertainty that cannot be resolved by better disclosure. The findings imply that the institutional effect of disclosure has a strong influence on IFRS informativeness.

This study gives a brief history of the evolution of the Nigerian economy from independence till date taking into account the several milestones towards actualization of a fully liberalized economy devoid of cartels, price fixing and unhealthy competition. Another important aspect of this article will be to dissect several economic policies that successive governments had deployed in Nigeria to ensure stability of the economy. Several economic terms like regulation, privatization, re-regulation, capitalization, indigenization, deregulation and competition are analyzed vis-a-vis the Nigerian economy. This work understudies the Nigerian economy as at today to decipher what economic models it has deployed to ensure a vibrant and robust economy. It places the newly passed competition law on a scale with the current regulatory strategy adopted by government in several sectors of the economy, forecasting its applicability to what is currently obtainable in the country. Bottlenecks and challenges that lie ahead are also identified and possible recommendations made using the experience of advanced economies in competition law.

I examine whether and how the recognition of operating leases on balance sheets influences managerial leasing decisions. In 2019, the FASB implemented ASC 842, which requires companies to capitalize operating leases. Because operating lease information was previously disclosed in footnotes, it was unclear whether capitalization would make any difference to managers or financial statement users. Upon the new standard's adoption, I find a marked decrease in firms' use of operating leases. This decline is driven by lease-intensive and less-levered firms. I also document a systematic substitution of operating leases with short-term and variable leases, which are both still allowed to be left off balance sheet. These findings consistently suggest that the elimination of perceived off-balance-sheet reporting benefits serves as the channel through which the new standard affects leasing decisions. Overall, I provide evidence that disclosure location (footnote vs. balance sheet) exerts a real effect on managerial behavior. This study responds directly to the FASB's call for research that examines the standard's real effects.

This paper demonstrates that low bank capital carries a negative externality because it amplifies local shock spillovers. We exploit a natural disaster that is transmitted to firms in non-disaster areas via their banks. Firms connected to a strongly disaster-exposed bank with lowest-quartile capitalization significantly reduce their total borrowing by 6.6% and tangible assets by 6.9% compared to similar firms connected to a well-capitalized bank. These findings translate to negative regional effects on GDP and unemployment. Additionally, following a disaster event, banks reduce their exposure to currently unaffected but generally disaster-prone areas.

Using a sample of around 340 banks from 48 countries, we examine whether and how corporate governance moderates the relationship between monetary policy interest rates and bank stability. Our results show that low interest rates reduce bank stability and have an adverse effect on risk-adjusted returns, and risk-adjusted capitalization; however, this effect can be mitigated by a bank’s commitment and effectiveness towards following corporate governance principles. The results also show that high values of corporate governance can completely offset the low rates’ adverse effects. Our findings are robust to the use of bank fixed effects and numerous variables that control for bank-specific and country-specific characteristics.

Peek and Rosengren (American Economic Review 2005; 95) suggested the mechanism of ``unnatural selection,'' where low-capitalized Japanese banks increase credit to low-quality firms because of their motivation to pursue balance sheet cosmetics. In this study, we replicate their estimation results, using loan-level data from 1994 to 1999, and thereby reexamine this mechanism in terms of the interaction effect in a nonlinear specification of bank lending. We demonstrate that their results imply that Japanese banks allocated lending from viable firms to unviable ones regardless of the degree of bank capitalization, being not consistent with the balance sheet cosmetics hypothesis.

The firms listed on the stock market in aggregate contribute less to total non-farm employment and GDP now than in the 1970s. A major reason for this development is the decline of manufacturing and the growth of the service economy as firms providing services are less likely to be listed on exchanges. A firm’s stock market capitalization is much less instructive about its employment now than in earlier years. Listed stock market superstars account for less employment than they did in the 1970s. Market capitalizations have not become systematically less informative about firms’ contribution to GDP.

Could a monetary policy loosening entail the opposite effect than the intended expansionary impact in a low interest rate environment? We demonstrate that the risk of hitting the rate at which the effect reverses depends on the capitalization of the banking sector by using a non-linear macroeconomic model calibrated to the euro area economy. The framework suggests that the reversal interest rate is located in negative territory of around −1% per annum. The possibility of the reversal interest rate creates a novel motive for macroprudential policy. We show that macroprudential policy in the form of a countercyclical capital buffer, which prescribes the build-up of buffers in good times, can mitigate substantially the probability of encountering the reversal rate, improves welfare and reduces economic fluctuations. This new motive emphasizes also the strategic complementarities between monetary policy and macroprudential policy.

In this study, I examine whether management discloses areas with higher financial reporting risk as critical accounting policies (CAPs) and how investors react to restatements of areas previously disclosed as CAPs. Through CAPs, management annually discloses the accounting policies that it views as most crucial to the portrayal of the firm's financial condition and results and require its most difficult, subjective, and/or complex judgments. I find that CAPs covering four areas are predictive of subsequent restatements: revenue, derivatives, accruals and short-term liabilities, and capitalization of expenditures. In tests of investor reactions to restatements, I find that cumulative abnormal returns to restatements are more severe (negative) when the areas restated were previously disclosed as CAPs. Collectively, these findings support that management discloses area-specific financial reporting risk through CAPs in some, but not all, areas and that investors view restatements of CAP areas as more egregious than restatements of non-CAP areas.

In this paper, we explore dynamic changes in the capitalization of sea level rise (SLR) risk in housing and mortgage markets. Our results suggest a disconnect in coastal Florida real estate: From 2013-2018, home sales volumes in the most-SLR-exposed communities declined 16-20% relative to less-SLR-exposed areas, even as their sale prices grew in lockstep. Between 2018-2020, however, relative prices in these at-risk markets finally declined by roughly 5% from their peak. Lender behavior cannot reconcile these patterns, as we show that both all-cash and mortgage-financed purchases have similarly contracted, with little evidence of increases in loan denial or securitization. We propose a demand-side explanation for our findings where prospective buyers have become more pessimistic about climate change risk than prospective sellers. The lead-lag relationship between transaction volumes and prices in SLR-exposed markets is consistent with dynamics at the peak of prior real estate bubbles.

Managerial overconfidence, originally disputed in terms of finance and accounting, has been dated back to Malmendier and Tate (2005a,b). Galasso and Simcoe (2011) studied the relationship between CEO overconfidence and innovation, focusing on patents, in which they found that overconfident CEO underestimates risks in R&D activities, resulting in more R&D expenditure. However, little literature concentrates on expense and capitalization of R&D expenditure in China, where new accounting rule applied since 2007, and correspondingly the relationship between overconfidence and preference of expense and capitalization. By Tobit model and GMM model, we found that overconfidence managers have incentives to capitalize on R&D expenditure, because accrual earnings management motivated by capitalized R&D, different from real earning earnings management triggered by expense R&D, which cuts down R&D expense directly to beautify the earnings performance, adjust the proportion of research and development. Therefore, such a preference to capitalize R&D turns the corporation to deal with accrual earnings management instead of real earnings management.

U.S. GAAP generally requires firms to expense R&D outlays as incurred, a requirement that many prominent stakeholders view as deficient in reflecting the value of a firm’s R&D program. Prior academic research supports this view by applying a theory for tangible capital to the issue of R&D accounting. However, tangible capital is modeled in this theory as an item that can be used immediately to generate revenues with no uncertainty. Different from tangible capital, many R&D investments can be described as uncertain multi-period ventures in which measurable progress can be made each period, but revenues can only be generated in future periods after the venture is successfully completed. I apply and extend an alternative theory that models this well documented and uncertain time lag between R&D cash outflows and inflows. Theoretical analyses predict that R&D expensing results in more value relevant accounting numbers than R&D capitalization and amortization. Empirical tests confirm these predictions in a sample of R&D intensive firms, suggesting that current accounting reflects the value of a firm’s R&D program better than R&D capitalization and amortization. This research is timely because many prominent stakeholders believe the opposite, and such beliefs have motivated the FASB to consider changing U.S. GAAP in recent years.

We calculate the shareholder returns of the companies in the Euro Stoxx 50 in the period 2004 - April 2020. We analyze 62 companies: 47 that were in the Euro Stoxx 50 in April 2020 and had trading records since December 2004 and 15 companies that had been in the Euro Stoxx 50 in the period. In the period December 2004-April 30, 2020, 19 companies had negative return and the average annual return was 4,8%. In the first four months of 2020, 6 companies had positive return and the average return was -24,4%. In the period December 2018-April 30, 2020, 26 companies had positive return and the average return was -3,2%. The correlation of return (December 2004-April 30, 2020) and Market Cap. in 2004 was -38%. The correlation of return (December 2018-April 30, 2020) and Market Cap. in 2018 was 43%. 34 companies had a price decrease (including dividends received) in the period 2004 – April 30, 2020 higher than 60%, 46 companies higher than 50% and 55 companies higher than 40%.

A network model is introduced and developed to compare portfolios of funds which are high ranked in Environmental Social and Governance (ESG) aspects with those with a poor ESG compliance. The nodes in the network represent funds and the edges are weighted on the basis of the capitalization due to the common components of the connected nodes. We specifically deal with the reactions of the considered financial networks to exogenous shocks of negative financial nature. To this aim, we provide a novel definition of the resilience of a financial network in terms of stability of its community structure. We test the theoretical proposal on different networks characterized by different ESG scores. We find that the high ranked funds networks are more resilient than the corresponding networks of low ranked funds.

Siegel (2014), Shilling (2015) and others rely on the work of Alfred C. Cowles to capture US stock market returns before 1926. Cowles in turn relied on Frederick Macaulay’s work for data on railroad stocks during this era. This study attempts to re-construct Cowles’ index from the ground up, by revisiting his sources and compiling anew the trade price, dividends, and capitalization of the individual stocks that make up Cowles’ index. I pursued two questions: did Cowles exclude any substantial number of stocks, such that their inclusion would change his estimates of market return? Second, do Cowles’ many adjustments for capital changes, such as rights issues, check out? I succeeded in reconstructing the railroad stock returns obtained by Cowles from Macaulay, and partially succeeded in reconstructing the utility and industrial stock returns estimated by Cowles himself. But I also found numerous excluded railroads, and an assortment of errors made by Cowles and Macaulay. I also found a set of industrial firms excluded because of judgment calls that Cowles made. Net of additions and corrections, I conclude that Cowles slightly over-estimated stock market returns in the period from 1871 to 1897. The effect is to reinforce the findings in McQuarrie (2019a): contra Siegel, stocks did not out-perform bonds during the 19th century.

We investigate how idiosyncratic lender shocks impact corporate investment. Lenders with recent default experience write stricter loan contracts, leading to a reduction in real investment for borrowing firms. The decline in investment is not attributable to loan riskiness, borrower's agency costs, the lender-borrower relationship nexus, lender capitalization, or to borrower interest rate sensitivity, but is more pronounced when the lender faces higher incentives to learn. The evidence suggests that defaults inform lenders about investment opportunities and their screening ability, and adjustments to this information have real economic consequences.

We develop a model to investigate the relations among (1) corporate tax incidence, (2) tax capitalization, and (3) implicit corporate tax in a competitive equilibrium. The economic pretax return is independent of whether the incidence of the corporate tax is shifted from shareholders to non-shareholders, such as customers or workers. However, tax incidence does affect the pretax accounting return, because the denominator of the return measure reflects the historical cost of the firms' assets and is often measured using prior year book values. To the extent a tax rate change changes the fair values of corporate assets (i.e., tax capitalization), the corporate tax affects pretax economic returns but not pretax accounting returns. The implicit tax rate for corporations reflects differences in corporate tax rates but is independent of pretax accounting returns.

The purpose of this study is to investigate the impact of COVID-19 on the performance of stock returns for all companies listed on the Tunis Stock Exchange. More specifically, we analyse the impact of various factors on stock market outcomes. These factors are (1) the daily growth in confirmed cases (DCG), (2) the daily growth in COVID-19 deaths (DDG), and (3) the daily growth in recovered cases (DReC). Our findings show that DCG had a negative impact on stock returns, while DDG increased the performance of stock returns. Finally, DReC had a positive relationship with returns, but this was not significant. The results also highlight how firm capitalization and the daily returns for Brent Crude had a negative impact on stock returns, while the FX rate had a positive impact. On conducting a sectorial analysis, we also found that the consumer cyclical sector has suffered hardships from COVID-19, while stocks returns from the service sector showed the best performance.

Initial coin offerings (ICOs) represent a novel funding mechanism where digital tokens are issued on the blockchain and sold to investors. One major reason for the success of this financing model is the fact that the issued tokens can immediately be traded on secondary markets. This event study analyzes 250 exchange cross-listings of 135 different tokens issued through ICOs on 22 cryptocurrency exchanges. We find significant abnormal returns of 6.51% on the listing day and 9.97% over a seven-day window around the event. Further analysis shows that the results clearly differ for individual cryptocurrency exchanges, as listings on individual exchanges yield returns of up to 34% on the event day, while others are negligible. An investigation of liquidity-related metrics shows that lower prior trading volume and asset market capitalization have positive effect on listing returns. Investors use phases of high market liquidity to sell off positions around the period of cross-listing events. The results on the cross-listing effects of ICOs may be of relevance to investors/traders, ICO projects, cryptocurrency exchanges and regulators.

The Netherlands’ pension system is characterized by high participation rates, adequate retirement income, strong capitalization and sustainability. Pressure points are arising, however, due to population aging and untransparent intergenerational transfers inherent in the system. Moreover, the Dutch pension system needs to adapt to the changing labor market landscape with an increasing share of workers in self-employment not covered by any pension arrangement. The government has proposed replacing collective defined-benefits schemes with personal accounts, and abolishing uniform premia and constant accrual rates. The micro-data analysis shows that allowing greater risk-taking and freedom of choice in managing pension savings could crowd self-employed into pension schemes.

We examine whether tax-sensitive investors play a significant role in options markets by examining whether option prices reflect investor taxes. Existing empirical option pricing literature ignores taxes. We exploit a unique setting where “index” options on the S&P 500 Index (SPX) and nearly identical “non-index” options on the exchange traded fund (ETF) tracking the S&P 500 Index (SPY) face different tax treatments. We find that higher investor taxes reduce option prices, indicating tax capitalization in options. We find consistent results when analyzing options around the investor tax changes enacted by the American Taxpayer Relief Act (ATRA) of 2012, and for options on stock indices other than the S&P 500 (e.g., Russell 2000). Altogether, our findings provide new evidence of an additional item—investor taxes—influencing option prices, suggesting that tax-sensitive investors play a non-trivial role in options markets and that taxes warrant consideration in broader options research. Data Availability: Data used in this study are available from public sources identified in the paper. JEL Classifications: H24; G12.

Although social mood can motivate herding towards new industries, the extent to which regulators cater to social mood may affect that herding. We explore this issue in the context of the nascent cannabis industry by examining herding among the cannabis stocks listed in the US and Canada, where the regulatory treatment of cannabis varies in its congruence with the prevailing social mood on cannabis’ legalization. Canadian-listed cannabis stocks entail strong herding across all market states and sectors, alongside most capitalization-segments; conversely, herding among their US-listed counterparts is relatively limited, appearing on up-market/high-volume days, for the smallest capitalization segment, as well as for several cannabis-sectors. Herding is present (almost always absent) around cannabis’ legalization announcement-days in Canada (the US), while cross market herding between US- and Canadian-listed cannabis stocks is very weak. We attribute Canadian (US) cannabis stocks’ strong (weak) herding to cannabis’ more (less) mood-congruent regulatory treatment, which promotes (reduces) certainty and encourages investors to herd more (less) on them.

The purpose of this study is to evaluate how different founder and firm characteristics affect new venture performance. This research uses survival proportional hazard functions and limited-information maximum likelihood instrumental regressions to quantify the marginal effects of capitalization choices on revenues and employment. Panel data analysis on 4,298 new firms shows that financing strategy matters, especially in combination with particular human and social capital attributes of the founders.

Attempts to measure the capitalization of local taxes into property prices, starting with Oates (1969), have suffered from a lack of local public service controls. We revisit this vast literature with a novel dataset of 947 time-varying local characteristic and public service controls for all municipalities in Sweden over the 2010-2016 period. To make use of the high dimensional vector of controls, as well as time and geographic fixed effects, we employ a novel empirical approach that modifies the recently-introduced debiased machine learning estimator by coupling it with a deep-wide neural network. We find that existing estimates of tax capitalization in the literature, including quasi-experimental work, may understate the impact of taxes on house prices by as much as 50%. We also exploit the unique features of our dataset to test core assumptions of the Tiebout hypothesis and to estimate the impact of public services, education, and crime on house prices.

Loan loss provisions in the euro area are negatively related to GDP growth, i.e., they are procyclical. Loan loss provisions tend to be more procyclical at larger and better capitalized banks. The procyclicality of loan loss provisions can explain about two-thirds of the variation of bank capitalization over the business cycle. We estimate that provisioning procyclicality in the euro area is about twice as large as in other advanced economies. This difference reflects a larger procyclicality of provisioning in euro area countries already prior to euro adoption, and the divergent growth experiences of euro area countries following the global financial crisis.

The National Flood Insurance Program (NFIP) is chronically insolvent due to the increased intensity and frequency of natural disasters. NFIP was not designed to be actuarially sound; however, the increasing debt associated with NFIP has resulted in policy efforts to increase flood insurance premiums. Despite widespread concerns over the affordability of higher premiums, less attention has been paid to the impact of premium rate increases on housing values and associated homeowner wealth. We use the quasi-experimental nature of eligibility criteria for the largest class of flood insurance premium discounts to causally estimate the capitalization of flood insurance premium subsidies using nationwide and city-specific hedonic difference-in-difference regressions. We find that in a nationally pooled sample, the average capitalization of subsidy eligibility is $11,807 and show that capitalization exhibits significant and intuitive heterogeneity across municipalities. Our results inform ongoing policy discussions surrounding the planned transition to NFIP’s Risk Rating 2.0 premium schedule.

We study how declared wealth responds to changes in wealth tax rates. Exploiting rich intranational variation in Switzerland, we find a 1 percentage point drop in a canton’s wealth tax rate raises reported taxable wealth by at least 43 percent after 6 years. Administrative tax records of two cantons with quasi-randomly assigned differential tax reforms suggest that 24 percent of the effect arises from taxpayer mobility and 21 percent from a concurrent rise in housing prices. Savings responses appear unable to explain more than a small fraction of the remainder, suggesting sizable evasion responses in this setting with no third-party reporting of financial wealth. (JEL D91, H24, H26, H31)

Since 2013 Initial Coin Offerings (ICO) have allowed companies to attract financing with the help of cryptocurrencies. In August 2017, the total capitalization of the crypto currency market exceeded $150bln. From the 1st quarter of 2015 to November 2017, the volume of funds raised amounted to $3,78bln. Statistics of ICO shows that demand continues to grow with claims of over $15bln raised in the first half of 2018. The first quarter of 2019 ended with $902 million total raised funds and $8.4 million average raised funds. The increasing number of projects financed by ICO (4954 projects during 5 years) as an alternative method to venture capital (VC) or initial coin offering (IPO) is caused by several reasons: the possibility of reselling the received tokens at a higher price after the launch of the project or earlier; the possibility of obtaining the company's services at lower prices; the increased popularity of crypto currencies (e.g. Bitcoin, Ethereum, etc.); the expectation of high profitability; the high speed of transactions (including the speed of attracting initial investments) and anonymity. However, due to difficulties in regulation, the ICO market attracts smaller investments on average (average investments in ICO projects equal to $19 million in comparison with the average size of IPO - $207,2 million) and there exists more chance for manipulation in the market, which leads to the fact that the results relevant to the IPO market cannot be applied directly to ICO. Due to the fact that blockchain technology and cryptocurrencies are new tools in finance, and the data for research has just begun to appear, there is a limited number of academic papers in this area of studies. Moreover, they are devoted mainly to the description of the mechanisms of the ICO, the advantages and risks of ICO, the review of existing ICO and crypto exchanges, legislation. The absence of fundamental works emphasizes the relevance and scientific novelty of the forthcoming research. The contribution to the existing literature is the identification of factors that affect the successful of ICO. Scientific novelty consists in the formation of the model evaluation of ICO success. Empirical results show that volatility of main cryptocurrencies has significant impact on the success of ICO. The constraints of the platform for Smart Contacts (ERC-20) and dependence on the Ethereum volatility overcome all other factors. Our data contributes with existence literature and shows the insignificance of sector of the project, almost all location region and fluctuation of influence of quality of team. This result may be explained by the uncertainty of the investor about the project (weak signals), absence of the regulation and legal framework. This result is beneficial for owners of companies since it is an argument for decreasing costs for marketing.